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The impact of macroeconomic developments and imbalances on fiscal outcomes

Author

Listed:
  • Sven Langedijk

    (European Commission)

  • Aurélien Poissonnier

    (INSEE)

  • Edouard Turkisch

    (European Commission
    EconomiX, University Paris Nanterre)

Abstract

Results from panel regressions on a new dataset of government revenue windfalls and shortfalls in EU Member States demonstrate that macroeconomic developments have a significant impact on cyclically adjusted fiscal outcomes and indicators. In particular, the results show that an increase in household debt results in higher government revenue windfalls, while a higher trade balance leads to government revenue shortfalls. These revenue windfalls and shortfalls have distorted the signals from fiscal indicators that are used to measure the ‘underlying’ fiscal position and the governments’ fiscal efforts to improve debt sustainability. The paper also finds that temporary windfall revenues trigger permanent increases in government spending or decreases in tax rates. Taking account macro-economic indicators, such as the trade balance and private debt, provides relevant complementary information for medium-term budgetary planning, budgetary rules and surveillance.

Suggested Citation

  • Sven Langedijk & Aurélien Poissonnier & Edouard Turkisch, 2023. "The impact of macroeconomic developments and imbalances on fiscal outcomes," SN Business & Economics, Springer, vol. 3(6), pages 1-29, June.
    • Handle: RePEc:spr:snbeco:v:3:y:2023:i:6:d:10.1007_s43546-023-00466-9
    DOI: 10.1007/s43546-023-00466-9
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    More about this item

    Keywords

    Macroeconomic imbalances; Adjustment; Revenue windfalls or shortfalls; Fiscal surveillance; Fiscal policy;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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